IDACORP, Inc. — Q2 2020 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2020; results compare the three and six months ended June 30, 2020 with the same periods in 2019. IDACORP is a holding company whose principal subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon. The interim financial statements are unaudited and results are seasonal.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| IDACORP operating revenue | $318.8 million | $316.9 million | $609.8 million | $667.2 million |
| Operating income | $79.4 million | $71.8 million | $131.0 million | $129.9 million |
| Net income attributable to IDACORP | $60.4 million | $53.2 million | $97.9 million | $95.8 million |
| Diluted EPS | $1.19 | $1.05 | $1.94 | $1.90 |
| Net cash from operating activities | Not stated by quarter | $128.6 million | $166.1 million |
Calculated operating margin was approximately 24.9% in Q2 2020 versus 22.7% a year earlier, and 21.5% for the first half versus 19.5%. Calculated net margin was approximately 19.0% and 16.8% for Q2, and 16.1% and 14.4% for the first half, respectively.
At June 30, IDACORP had cash and equivalents of $460.4 million, current assets of $828.0 million and current liabilities of $447.2 million. Long-term debt, including its current portion, was $2.175 billion; total equity was $2.502 billion. Covenant leverage was 47% for IDACORP and 49% for Idaho Power, below the 65% limit. Available revolving credit was $100 million for IDACORP and $275.8 million for Idaho Power; neither had commercial paper or credit-facility borrowings outstanding. IDACORP paid $0.67 per share in Q2 dividends.
Material changes versus prior comparable periods
- Q2 revenue rose 0.6% and net income attributable to IDACORP rose 13.6%; first-half revenue fell 8.6% while net income rose 2.1%.
- Q2 earnings benefited from customer growth, higher irrigation and residential usage, and lower O&M expenses. Customer growth was 2.6% year over year; residential and irrigation usage increased, while commercial and industrial usage declined amid COVID-19 impacts.
- First-half wholesale energy revenue decreased $52.6 million, reflecting materially lower wholesale sales volumes and prices than in 2019. Transmission wheeling revenue fell $6.4 million for the half, partly due to lower tariff rates and reduced regional market activity.
- First-half operating cash flow declined $37.5 million. The filing attributes the reduction mainly to changes in regulatory deferrals and collections, including power-cost adjustment timing, and differences in investment distributions.
Outlook, risks, contingencies and unusual items
- Management expected approximately $1.6 billion of capital expenditures over 2020–2024: $300–$310 million in 2020, $305–$315 million in 2021, and $1.0–$1.05 billion in 2022–2024. It stated it did not anticipate filing a general rate case in the next 12 months. No full-year EPS guidance was provided.
- Idaho Power forecast 2020 hydropower generation of 6.5–7.5 million MWh, compared with a 20-year average of 7.3 million MWh. Regulatory PCA and FCA rate changes took effect June 1, including a $58.7 million annual PCA revenue increase and a $0.7 million FCA increase; these mechanisms substantially pass through or offset underlying costs.
- COVID-19 created uncertainty around commercial and industrial load, customer collections, regional transmission activity, project schedules and supply chains. Idaho Power’s customer-receivable allowance increased to $3.5 million, or 4.3% of customer receivables, from $1.4 million and 1.9% at year-end 2019. Idaho Power recorded a $0.6 million regulatory asset for estimated incremental pandemic expenses, net of savings; Idaho had authorized deferral for possible future recovery, while Oregon authorization had not been received.
- Idaho Power issued $230 million of 4.20% bonds due 2048 and $80 million of 1.90% bonds due 2030. Subsequent to quarter-end, it redeemed $75 million of 2.95% notes due 2022, paying a $3.3 million make-whole premium, and planned to redeem $100 million of 3.40% notes due November 2020.
- Significant longer-term uncertainties include Hells Canyon Complex relicensing, related litigation and environmental requirements; permitting and litigation affecting the Boardman-to-Hemingway transmission project; wildfire claims and exposure; hydrological variability; and regulatory cost-recovery outcomes. The company said existing loss-contingency accruals were not material, but future accruals could be material in a period.
Important facts for investors to verify
- Track customer delinquency, bad-debt expense and the eventual rate treatment of pandemic-related deferrals and any COVID-related revenue impacts.
- Monitor cash generation against the substantial capital program, planned debt refinancing and liquidity needs.
- Assess the impact of wholesale sales, hydropower conditions, fuel mix and PCA true-ups on earnings and operating cash flow.
- Follow regulatory decisions and timing for Hells Canyon relicensing, transmission projects, customer-owned generation and environmental obligations.
- Confirm that earnings growth and dividend capacity remain consistent with regulatory recovery, covenant limits and management’s capital plans.